India is trying to lure equipment manufacturers to its telecom market with the promise of financial incentives for companies that commit to investments.

Under a so-called "productivity-linked incentive" (or PLI) scheme, the Department of Telecommunications will offer financial incentives worth between 4% and 6% of sales over a five-year period.

To qualify, a firm must invest more than 6 billion Indian rupees ($79 million) in the country over a four-year period and export goods worth between INR10 billion ($132 million) and INR30 billion ($396 million) annually.

The plans have already been cleared by the Digital Communications Commission but still require the approval of the cabinet before they come into force.

Authorities hope the scheme will attract manufacturers previously discouraged by the cost drawbacks of doing business in India.

The country has lost out to lower-cost markets such as China and Vietnam in the manufacturing sector. While global firms including Ericsson, Huawei and Nokia all have facilities in India, the percentage of locally sourced material and components remains very small.

The latest initiative comes a few years after the government launched a similar scheme for mobile device makers. That helped attract global device companies such as Apple and Samsung.

More broadly, India has been trying to establish itself as a manufacturing destination for years. And the government has announced several incentives for foreign firms as part of its ambitious "Make in India" initiative. Those have included a reduction in corporate tax for the first time in three decades, of significant benefit to the manufacturing sector.

Security is another reason for India to promote local manufacturing. Several countries have banned Chinese gear makers such as Huawei and ZTE from participating in the 5G market because of security concerns. In India, authorities have yet to clarify if service providers can use Chinese equipment.

The PMA issue
The local Indian telecom gear makers, such as Tejas Networks and Sterlite Technologies, have been demanding so-called Preferential Market Access (PMA), which would give an advantage to local firms. PMA would essentially work by offering greater market access to firms that do 50% of "value addition" locally.

Global firms, like Nokia, Huawei and Ericsson, are clearly at a disadvantage here and would lose out if a contract demanded a higher share of locally manufactured components. Understandably, they have opposed any suggestions they should be included in a PMA scheme.

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The Indian government has recently started to focus on Atmanirbhar Bharat (meaning self-reliant India) initiatives, and the PMA, if it happens, seems to be a step in this direction.

India is currently dependent on imports for its telecom equipment, importing $21 billion worth of telecom gear in the 2017/18 fiscal year. The country is a major market for global telecom manufacturers Ericsson, Huawei and Nokia.

Given that situation, it will not be easy for the country to move toward local firms. And a shift could even hit resistance from service providers that lack confidence in Indian firms' ability to offer the best products and prices. Right now, few Indian companies can manufacture at scale to meet the requirements of Indian telcos.

— Gagandeep Kaur, contributing editor, special to Light Reading